How to Apply for SBA 504 Loans

The Small Business Act (SBA), private lenders and Certified Development Companies (CDC) join together to provide 504 loan programs for small businesses that need such programs. The way it works is that the small business applies for a loan that would help pay for a particular project. Then, the lender would provide about half of the cost and the CDC will underwrite and approve a debenture for up to 40% of the project. The lender makes the loan (up to 90%) and is paid down soon thereafter by the proceeds of the debenture sale. A 504 loan is extremely helpful for small businesses.

The first step to applying for an SBA 504 loan is to find out as much as possible about the process. There are very many helpful guides and articles on the Internet. Also, it's a good idea to speak with SBA 504 expert as well as a local CDC and pick up whatever literature they might have concerning 504 programs. A potential borrower needs to be well informed. He or she will need to make sure that he knows what kinds of businesses are qualified for 504 loans, what the money can be used for and how the money must be paid back. The SBA offers guaranteed loans, but this only helps the borrower by ensuring that a loan will be easier to obtain. An SBA guarantee only applies for the CDC lender.

It is very important to remember that an SBA loan is particularly designed for businesses that will be creating or retaining jobs for a community. Up to $2 million in SBA debt can be borrowed for most business types (eligible manufacturers can borrower up to $4mm in SBA debt) and the business must show job creation or retention that will occur from the loan. This money can be used for the revitalization of business, expansion, business development, productivity growth, restructuring, growth and other such goals. Also, it is important to remember that these 504 loans cannot be used for the purposes of working capital or inventory, or to pay, consolidate, refinance or otherwise repay prior debt.

Any business looking to apply for a 504 loan must go to the offices of both a large private lender, which can be almost any bank or non-bank lending firm, and apply. The lender should be able to help guide you through the process. CDCs are there to help applicants as well. CDCs are the ones that will lend an applicant 40% of the total amount and therefore must be an important part of the loan process. If you are not well informed, then you ought not go through with the process until you are. SBA loans usually incorporate long repayment terms and can damage your credit rating if you're not careful about repayment. Though SBA loans are usually designed for high-risk borrowers, they can really help boost a company's leverage. In the business world, leverage equals credit and credit is not only a good thing, it is the most crucial of all your business tools. Make sure that you have a well planned proposal for the money you are borrowing, and a well planned out repayment strategy.